Economist: Prolonged trade war threatens North Dakota economic growth

FARGO--Economic activity edged up in North Dakota in July as the region continued a long expansionary run, but retaliatory trade tariffs threaten to erode farm exports and boost manufacturing costs.

Written By

Patrick Springer
Aug 1st 2018 - 5pm.

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FARGO-Economic activity edged up in North Dakota in July as the region continued a long expansionary run, but retaliatory trade tariffs threaten to erode farm exports and boost manufacturing costs.

Almost two-thirds of firms surveyed for the Mid-America Business Conditions Index reported that recent tariffs or trade restrictions have had, or will have, a negative impact on their company. Similarly, 46.8 percent of supply managers indicated recent tariffs have increased the cost of buying from abroad.

The monthly survey of business conditions for nine Midwestern states found a decline to 57 in July from June's 61.8, a trend bucked. North Dakota's business conditions index climbed to 69.6 from June's 66.4, while Minnesota dropped to a still-positive 55.8 from June's 58.8.

The index, on a scale from 0 to 100, is in positive territory with levels above 50, reflecting growth. The index is an initiative of Creighton University in Omaha.

Healthy exports, including food and agricultural products, reflected unusually high purchases, likely because buyers were purchasing early to get ahead of increased prices caused by higher tariffs, said Ernie Goss, a Creighton economist and the index's director.

"They bought in June and July in anticipation of higher tariffs in September and October," he said. As a result, purchases in future months likely will fall. "They've already stocked up," Goss said.

So far, the impact of the tariffs, which fall heavily on farm exports and manufacturing, haven't really been felt, he said.

"The impact of the tariffs thus far have been somewhat muted, except in agriculture," Goss said. Farm exports commonly are targeted in retaliatory tariffs, as is happening in response to the Trump administration's imposition of tariffs against other countries, he said. "They're already seeing some negative fallout."

Impacts will worsen, including falling farm exports, if the dispute escalates. "If we don't see some resolution, these impacts are going to climb," Goss said. The Trump administration has pledged $12 billion in aid to soften the blow to farmers, but that will be a small Band-Aid that won't "solve the problem," he said.

"It's not sufficient to address the losses that will accumulate if we continue to go down this path," Goss said. "Farmers survive and do better under free and fair trade."

Rising interest rates also likely will slow Midwestern economic activity in the months ahead, although Goss expects growth to continue. Many economists predict the Federal Reserve will hike interest rates by another quarter of 1 percent, to slow inflation from rising oil prices and price increases from the tariffs, when the board meets Sept. 26.

July marked the 20th consecutive month that the Mid-America Business Conditions Index has remained above a growth-neutral level of 50, but the second consecutive month the regional index has fallen.